Dave Says - January 4, 2016

Goals limiting one another

Dear Dave,My husband and I are currently renting an apartment for $1,200 a month. Together, we bring home about $7,000 a month, and we’d really like to buy a house soon. Right now we have about $10,000 in debt on a boat along with ongoing stable bills, food and upkeep for our three horses. What price range of houses should we look at in our situation?Michelle

Dear Michelle,Homeownership is a great goal, but first you two need to clean up your debt and build an emergency fund of three to six months of expenses. After that, I want you to save up enough for a down payment of at least 10 to 20 percent. When buying a home on a mortgage, I always recommend the monthly payments be no more than 25 percent of your monthly take-home pay on a 15-year, fixed-rate loan.

Now, let’s get to the other issues. You have some things in your life that are pulling at you financially. At some point, you may have to take a long look at the situation and ask the hard question, “What is more important to me: horses and boats or home ownership?” Getting rid of that boat, or finding new homes for one, two or all of your horses, would bring in some cash to put toward your debt and cut down on at least some of the animal maintenance.

Anyway, that’s how I would look at it. My wife and I both are big fans of boats and horses. But we like boats more. One reason is because they don’t eat as much! I can’t get mad at you about either one, but right now you’ve got three things pulling at you as financial priorities — home ownership, a boat and three horses. They’re all pulling at you, and they’re pulling at each other and limiting each other.

Of course, you can always buy a lot less in house. But what it really comes down to is what’s most important to you. That’s the big question, and it’s one that only you can answer.—Dave

A frank discussion about credit cards

Dear Dave,I don’t understand why you don’t like it when people properly manage their credit cards and pay them off every month. By doing this, you pay no interest and in my case I even got a free trip to Europe from using my credit card. Please explain.Patrick

Dear Patrick,I truly doubt that I can explain it to your satisfaction, but here goes. First, the credit card company did not give you a free trip to Europe. They’re not going to lose money on transaction after transaction, year after year. The fallacy is that you feel like you’ve outsmarted a multi-billion dollar company that studies human behavior at incredible levels. You maybe, possibly came out ahead against them during that particular calendar year, but even that’s debatable.

Over the course of your life, you’ll spend more when using credit cards as opposed to cash. There’s plenty of research proving this to be fact. If you use a credit card repeatedly with the idea that you’re getting a free trip to Europe because you’re building up your miles, you spend more. An example would be McDonald’s. When they started taking credit cards years ago, they found that the people using them spent 47 percent more.

In a good way, you are very unusual. You’re not playing over in the stupid zone like most people who use credit cards. But both I and the credit card companies have found that, on average, your behavior would put you in a class of less than one-half of one percent of their customers. Can 0.5 percent of people handling snakes manage not to get bitten? Sure. But that doesn’t mean I’m going to start recommending snakes!—Dave

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